By Eduardo Schur, EY
Amid evolving market conditions, small and midsize biotech companies have been increasingly active in developing novel drugs and securing FDA approvals. And today, smaller biotechs with less than $1B in total sales represent a significant share of new molecular entity market approvals and launches, growing from 10% in 2017 to 30% in 2021.
As a result, small and midsize biotech valuations have been rising, thereby making them less attractive for acquisition by larger players and forcing these companies to launch on their own. Launching a new drug can be challenging. Consider that more than two-thirds of biopharma products introduced since January 2020 have failed to meet analyst expectations, and that overall launch success has been disproportionately lower for biotechs in the last two years in the U.S., with 59% of those misses from companies with less than $1B in revenue. Further, according to our analysis, only a small percentage of emerging biotechs exceeded sales expectations, further emphasizing how challenging commercial execution can be for those organizations pursuing their first or second launch.
The State Of Biotech M&A
Traditionally, biotech M&A activity has occurred prior to product commercialization, often in Phase 2 or 3 of clinical development. However, in the first half of 2021, valuations for early-stage small and midsize biotechs reached historic levels due to increased interest in new technologies and therapeutic development amid a significant innovation deficit among large biopharmaceutical companies. According to the 2022 EY M&A Firepower report, acquirers paid, on average, a 62% premium for public companies relative to their share price one month earlier. At the same time, funding alternatives such as IPOs and SPACs reached a fever pitch across the industry.
This provided these target biotech companies little financial pressure to sell and a stronger negotiating platform to demand higher deal premiums, especially if their drug belonged to a new therapeutic class expected to be important for future growth. For these reasons, today’s biopharma acquirers are taking a more cautious approach and increasing their value expectations for drugs, devices, and diagnostics.
Although larger biopharma companies are aggressive in their pursuit of external innovation to stay competitive, today’s acquirers prefer to engage in strategic partnerships as they wait for biotechs and their products to mature, demonstrate potential value, and become de-risked. The launch process is often a new endeavor for emerging biotechs since they have been built and structured primarily to develop novel therapeutics. As a result, most of these enterprises lack the infrastructure necessary to execute successful launches.
Considering current M&A conditions for biotechs, we recommend that smaller and midsize biotech companies focus on five key areas to enable a successful launch.
1. Design An Operating Model That Drives Efficiency.
From market access to sales, supply chain, and regulatory, a cross-functional mindset is essential for a successful biotech launch. This involves building out a launch team with diverse skillsets and capabilities early on, particularly for biotechs launching a product for the first time with limited resources.
Collaboration, accountability, and diversity of thinking inform a wide variety of critical launch-related activities, including pricing, marketing spend, and sales force deployment. Without proper planning and prioritization around key activities and resources, the launch team likely will find it difficult to execute an effective launch due to significant challenges in catching up on related tasks that require long lead times.
It is critical for organizations to develop execution plans, include associated investment that enables the launch team to build a deep understanding of the market, and strategically position the company’s products for success.
2. Execute An Effective And Fit-For-Purpose Go-To-Market Plan.
Commercialization budgets are typically large, and their up-front spend is not at risk, assuming regulatory approval. But biotech companies must utilize a fit-for-purpose, prioritized, and smaller budget while competing in the marketplace.
Emerging biotechs should take advantage of the increasing role of medical affairs, advocacy, and potential provider partnerships in their go-to-market strategy. Innovative plans to activate key opinion leaders prior to launch can support a robust product introduction. Relationships with influencers may bolster the clinical need of a new product relative to the standard of care or other interventions in the market. In addition to conveying a compelling value story, emerging companies should engage payers early to understand the drivers and potential barriers for product uptake.
Moreover, the COVID-19 pandemic has accelerated the shift beyond traditional face-to-face interactions to more digitally enabled communications. As such, biotechs need to plan, build, and implement both an omnichannel engagement model to interact with customers and an end-to-end positive patient experience. It’s also important to understand which stakeholders to engage, when, and on which channel, to drive a product’s successful market penetration.
3. Be Strategic About Market Access And Pricing.
Leaders should carefully develop estimates for potential product value by applying risk scoring to assess pricing and guide strategic choices. This can be done by building robust forecasting models and establishing a methodology to evaluate the probability of technical, regulatory, and market access success for each product.
It’s critical for the launch team to develop an early understanding of how diverse stakeholder groups will perceive a product. This will enable the team to plan for any potential obstacles that may arise during launch. The impact of not doing so can be significant, including underperformance and missed first-year forecasts. Small and midsize biotechs also need to understand the payer perspective on unmet need, comparators, and coverage and reimbursement processes early in the planning process so that the company can plan for and generate the appropriate evidence ahead of launch.
The launch team also needs to assess the budget impact in the context of the treatment paradigm and outcomes when they establish the list price, net price, and coverage goal for the product. And because many of these tasks must be completed virtually, many companies also need to evaluate which payers to engage and how to engage them — including the pre-launch exchange of information — to articulate the value proposition of the product and potential negotiations at launch.
4. Prioritize Data Analytics And Monitoring.
Strategically collecting, analyzing, and monitoring data is essential to deploy a more efficient go-to-market strategy with limited resources. Small and midsize biotechs should leverage their internal data and external data sets to uncover market insights as well as physician and patient preferences and behaviors. Additionally, biotech companies are now applying machine learning and predictive analytics to a wide range of commercial use cases, including identifying drivers for uptake and predictions on how providers, patients, and payers are likely to react to the entry of a new product. Using predictive analytics also can help launch teams anticipate reimbursement hurdles and improve patient access.
Advanced and predictive analytics can provide sales and marketing functions with real-time insights into content and channel preference based on the historical behavior of physicians and patients, increasing the likelihood that the right message will get to the right stakeholder through the optimal method. Tracking analytics will improve the quality of the insights extracted from data and increase overall organizational agility, resulting in a quick adaptation of messaging to customer preferences and seamless redeployment of resources. In addition, monitoring performance using consistent metrics across the product portfolio will help teams identify potential issues and course correct.
5. Conduct Market-Shaping Activities Early.
Collaborating with influential health and patient advocacy organizations, community leaders, and market influencers is especially important for new therapeutic indications, as shaping an unmet need with novel products in novel landscapes can take considerably longer than it does in previously established markets. Biotechs should understand the nuances of the landscape, evaluate the market, and effectively communicate value and unmet needs throughout launch engagements.
Most successful companies begin these activities during the clinical development phase to transform disease perception. The launch team will need to form strong partnerships with patients, caregivers, and advocacy groups to understand the obstacles they may face in accessing treatment. Patient advocacy groups are tremendously influential in accelerating funding for innovative treatments by conveying their patients’ pressing needs to regulators, policy makers, and budget holders. In addition, building valuable relationships, deploying disease-state education programs, and priming the market can help stakeholders analyze data to source a stronger, more nuanced understanding of the market and unmet patient needs. If market-shaping activities are executed effectively, biotechs can transform existing market structures to improve therapy awareness and maximize patient access and uptake upon launch.
A successful launch can establish value and change the narrative in negotiations for small and midsize biotechs, but M&A may not be a reliable vehicle. We encourage emerging biotechs to apply these principles to effectively and competitively launch products before realizing an exit strategy.
About The Author:
Eduardo Schur is the EY U.S. Health Sciences & Wellness Commercial Strategy and R&D lead. He has more than 20 years’ experience in pharma and biotech, leading product launches, due diligence products, commercial assessments, and medical and market access projects in several therapeutic areas. He holds a bachelor’s degree in marketing and finance from Fundação Getulio Vargas in São Paolo, Brazil.
The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.